What is a Property Management Contract?
A property management agreement is a legally binding contract between a property owner and a property management company or individual who agrees to take on the responsibility of managing the property. The agreement is usually set for a specific length of time, but can usually be terminated by the property owner with proper notification, defined in the agreement. In Florida, this contract is governed by Florida Statutes chapter 475 and Florida Administrative Code section 61J2-14.003. The Florida Real Estate Commission also issues details on these agreements in their "Real Estate Professional Practices".
While a property management agreement is important in most states, it is absolutely critical in Florida for both parties to provide written documentation of the duties they will be undertaking and the fees and commissions each party will receive . This is especially true since property management companies and individuals can charge completely different fees.
While some Florida property managers only charge a flat leasing fee for filling an apartment or home, others will charge an application fee, an annual re-leasing fee, a renewal fee, a pet fee, a marketing fee, a move-out fee, a background check fee, and/or maintenance fees. Some real estate professionals also charge a percentage of rent in addition to the upfront leasing fee.
Moreover, all Florida property management professionals are required by Florida statute 475.6115 to segregate all client funds in a non-interest-bearing account in their business name for the benefit of the owner/depositors. (Fees may be withdrawn electronically.) This means that landlords must pay special attention to their property managers to ensure they are complying with the statutory requirements for safekeeping these funds.
Key Components of Florida Property Management Agreements
The essential components of Florida property management contracts are:
A. Term of the Agreement. The term of the agreement is 1 year.
B. All renewals are for 1 year unless a specific date is mentioned and agreed upon otherwise.
C. The term of the agreement can also be terminated by either party without cause upon 30 days written notice.
D. The property manager is to maintain two (2) bank accounts – one (1) trust account in the name of the property owner for security deposits, advance rent funds, and any other funds, which may be required to be held in escrow, and one (1) bank account in the name of the property management company for all other funds collected by the property management company.
E. In addition, the property manager shall maintain accurate, current records of the account balances for all properties under management, and shall have the account balances reported to the property owner no less frequently than monthly.
F. The property manager is responsible to provide the following services:
- Rent collection from tenants;
- Show the property to prospective tenants;
- Process all applications, including credit checks and provide other necessary reporting to the property owner;
- Execute leases on behalf of the property owner;
- Deposit all rents and other funds collected into the appropriate account(s);
- Disburse the net balance of funds to the property owner on a monthly basis;
- Prepare and provide the property owner with a monthly accounting statement;
- Handle tenant repairs if less than $500 or as otherwise approved;
- Manage and supervise all maintenance, including emergency repairs;
- Perform inspections of the subject property on a quarterly basis or as otherwise agreed:
- Communicate regularly with the property owner:
G. The property management agreement should also require that no later than 7 days prior to the expiration of any lease, the property manager shall provide a status report to the property owner:
- Reflecting the amount of rent due and any other charges;
- The amount of the total security deposit, rent, and other charges currently held by the property owner; and
- The number of days remaining before the expiration date of such lease.
H. The property manager should have the right to terminate the tenancy of any tenant if the rent is late twice, or more than once in any 6-month period. The property manager should also have the right to terminate any lease and evict any tenant at any time, provided, however, that the property manager must first give notice to the property owner.
Legal Requirements Specific to Florida
In addition to these general requirements, Florida law includes some specific obligations for rental property managers and owners. The main statutes regarding residential leases and property management are Florida Statute 83.45 and Florida Statute 83.49. Below are some notable provisions:
Fees
Florida Statute 83.49 provides that, while a property manager may charge a one-month management fee as part of taking a new tenant, they are not entitled to charge a new tenant any further nonrefundable management or other fees. We recommend that property owners and property management companies have their leases reviewed by a Florida attorney before having new leases signed to ensure these general terms are included.
Security Deposits
Under Florida Statute 83.49(3), security deposits need to be held in a separate account or secured by a bond. Florida Statute 83.49 (4) provides that once money is refunded to a tenant, the landlord has 15 days to provide the tenant with a written notice claiming the deposit.
General Requirements
Florida law also requires that residential leases have certain general requirements. For example, Florida Statute 83.49(3) requires that the lease contain the following disclosures:
The general requirements for all residential leases are similar across state lines.
Duties and Responsibilities Defined
A well-crafted property management agreement will clearly define the duties of the property manager. Standard duties often include the obligation to keep the premises safe and habitable, to collect and account for all funds received on behalf of the owner, to maintain accounting records that fully and accurately reflect all funds received or held on behalf of the owner, and to promptly remit all collected funds to the owner. The scope of duties may be even more extensive where there is a homeowners association with a governing board. The role of the property manager might include overseeing communal maintenance, managing financial accounts, and facilitating communication amongst the homeowners. Manager duties in a homeowners association are typically disclosed to condominium unit owners in the package of materials that must be provided by law prior to disclosure of management. Florida statutes governing homeowners associations include safeguards for the unit owners against making any decisions requiring a vote until the disclosures have been provided. Owners have their own set of duties to the manager and to the property. Owners must prepare the property for occupancy, pay the management fee, cooperate with reasonable requests of the landlord or manager, and provide the manager with access to the property at all reasonable times. It should also be clear who is responsible for maintenance and repairs. Owners should expect to receive regular accounting statements and reasonable notice before the termination of the relationship so that the property is returned in the same condition as when the agreement was initiated.
Potential Traps in Agreements
While many property management agreements are carefully drafted to meet the needs and requirements of both the owner and the manager, some common pitfalls exist which should be avoided. The following list summarizes some of these common mistakes and how they can be avoided:
– No Written Agreement
Without a written property management agreement, the parties do not have a clear understanding of the relationship, obligations, rights and responsibilities of each. This simple mistake could have serious legal consequences and should be strongly avoided.
– No Formal Termination
Occasionally, a property is managed without any formal termination of the agreement , usually because the relationship exists on a month-to-month basis. This often leads to confusion because the rights of the parties upon such termination are not addressed in writing and may no longer be strictly enforced at law.
– No Joinder of Owner/Manager Parties
Sometimes a corporation or other entity which owns the property is not formally joined as a party to a property management agreement. This can complicate matters when the management company is a closely held entity and creates multiple layers of corporate entities which leads to unnecessary costs due to multiple required signings of the agreement.
– Without Defined List of Leases to be Managed
One of the most frequently issues that arise is which leases are being managed by the property manager. Defining the leasehold estate and the number of units to be managed by the property manager is especially important for owners who own multiple properties.
Negotiating a Florida Agreement
Negotiating an agreement in Florida requires a different approach than most people might expect. For many, the idea of negotiation may be intimating, especially for an agreement that will last over multiple years and dictate a large portion of their business dealings with a property management company. However, as the previous sections of this series have shown, there are some straightforward tips for what should be in an agreement, plus a few things to avoid.
The process should start by having a list of key objectives created by both the owner and the manager. This list should contain each party’s top five or so objectives for an agreement. It is not necessary to reach an agreement on all of these objectives, but the document should address each party’s goals. It is important to remember that an agreement should not be a one-size-fits-all template for every property. Every property will have its own unique features and issues. Therefore, both parties should take the time to customize the document to fit their specific needs. In other words, even though all properties will have the same general outline of an agreement, the details should be tailored to the specific needs of the property. Finally, there are two other key items to be sure to get into an agreement, although they seem to be omitted from most of the management agreements I see. First, make sure to include a dispute resolution clause. If something bad happened, how do the parties get there money back? What happens if an owner wants to terminate the agreement? To avoid this problems, make sure to include a termination clause and discuss it with the manager and have her initial beside it. Another big one is getting the management company to agree to not do any repairs that cost over $X without consulting you first. Even if the owner’s house is on fire, there should be a limit to what the management company can spend without your consent.
How to Enforce a Property Management Agreement
Enforcing a property management agreement in Florida involves a series of well-defined steps. The first step is sending written notice of the default. A general rule of thumb is to send at least two written notices of default before terminating the relationship with the property management company. A final termination notice should also be sent by certified mail, return receipt requested (so you have an official record of service).
In Florida, a principal can only terminate an agency relationship for cause if there is a written contract. If the principal terminates the property management agreement for cause without having a written contract, the former property manager may be entitled to recover commissions, management and leasing fees for the remaining contract term, as well as legal fees.
If the property management company continues to manage the property after the relationship has been terminated , they will be able to take their commission for the entire contract term, as well as their lease and management fees, without regard to the ultimate re-letting of the units or the collections of the tenant.
If the former property management company has a lock out key and refuses to return it, then you may have to file a lawsuit to recover the key. A lawsuit for damages based on a breach of fiduciary duties under applicable law may be an option. You may also be able to file a suit for trespass to obtain the keys and records without any requirement to pay the former property manager.
Florida law requires property managers to maintain records of all receipts and disbursement of funds on behalf of the owner. We find this is generally done badly. Property management companies often fail to retain a true trail of their income and disbursements as well as bank records, ledgers and trustee accounts. This makes a breach of the fiduciary duty difficult to prove.